Dear Colleagues,
The importance of counter-cyclical macroeconomic policies has been
emphasized by some of us, even when the concept had been marginalized from the
lexicon of mainstream economics. Some of us insisted that a good
counter-cyclical macroeconomic policy has to start during booms to avoid the
accumulation of unsustainable indebtedness, and, in the case of emerging and
developing countries, of unsustainable external debt positions. Some of the new
instruments that we suggested were in fact implemented by some countries.
Nevertheless, support for such instruments was weak: the International
Monetary Fund had a pro-cyclical bias in its monetary policies; emerging and
developing countries tended to have pro-cyclical macroeconomic policies, which
magnified rather than smoothed the effects of strong positive and negative
external shocks; and it is now clear that the U.S. ran massive pro-cyclical
policies during the 2003-07 boom, a factor that became a basic a major force
behind the financial crisis that erupted in the summer of 2007 and became a
major worldwide financial collapse in mid- September 2008.
Thus, it is very refreshing to see that the term “countercyclical” not
only came back, but came back with force during the “Great Recession.” It has
been strongly endorsed by the Group of 20 and now is frequently heard from the
International Monetary Fund and some orthodox economists. The most massive
Keynesian macroeconomic packages in history were put in place, including in
some emerging markets, and some policy innovations were endorsed, particularly
the principle of introducing countercyclical principles in prudential
regulation. Financial policies were put in place in India and Colombia to cool
down the credit boom and avoid currency mismatches in domestic portfolios;
large countercyclical packages were put in place during the crisis in Brazil,
Chile and China, though in the latter they accelerated some of the imbalances
of the Chinese economy.
Still, some countercyclical policies have been weak. European policies
have been weaker than those in the U.S. during this as well as previous crisis.
The lagged and very moderate countercyclical policies in Turkey during the
recent crisis can be tracked to the problems generated by the fiscal crisis and
adjustment in the early 2000s. And in Africa the experience has been very
diverse, from countries that have adopted countercyclical policies to those
that have been unable to put them in place.
No country has been free from the boom-bust pattern of the most recent
cycle, which had the U.S. economy as its epicenter. The idea that somehow
emerging and developing countries could decouple from the industrial world has
not stood up to reality. Indeed, this proved to be false, and the peculiar
euphoria that has characterized world financial markets since the second
quarter of 2009 have also facilitated the recovery–i.e., that push rather than
pull factors have contributed to the renewal of capital flows into the emerging
markets.
The Journal of Globalization and Development’s symposium, entitled “The
Return of Counter-Cyclical Policies,” examines this issue and the cases of
several countries, such as Brazil, Chile, China, Turkey, Colombia, India, and
more. I invite all of you to take a look at this symposium athttp://www.bepress.com/jgd/
Looking forward to a great discussion,
Jose Antonio Ocampo

Professor

School of International and Public Affairs

Columbia University

[Facilitator's Note: Jose Antonio Ocampo is&#160; former UN Under
Secretary General of Economic and Social Affairs]

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